WASHINGTON, April 13, 2012 – On Monday, the Senate will vote on the “Buffett Rule”, a policy proposed by the White House that would impose a minimum 30% taxation rate on households making more than $1 million a year. It’s named after investor Warren Buffett, who famously pointed out that his secretary paid a higher tax rate than he did given how much of his income derives from investment earnings rather than wages.
The White House website describes the proposed tax policy as “a simple principle of tax fairness that asks everyone to pay their fair share.” Although Senate Democrats are aware that the legislation will easily fail to pass through the Republican dominated Congress, the vote will set the stage for the presidential campaign leading up to November.
For Obama, the Buffett Rule will be the centerpiece of his campaign. At first glance, the President has the advantage. It’s hard to argue with tax fairness, especially after a sustained period of poor economic performance and the corresponding financial difficulties faced by many American households today.
Unfortunately however, this policy would do little to increase job creation or spur investment. It would do even less to pay down the national debt.
The Buffett Rule is all show and no substance.
Obama’s team will use the Buffett Rule to try and capitalize on Romney’s main weakness, his wealth. Romney’s personal tax rate came under intense scrutiny earlier this year during the Republican nomination process when it was discovered he had ‘only’ paid a 14% tax rate on his earnings in the last two years (a rate which amounted to about $6.2 million).
Romney’s fellow Republican candidates jumped on the chance to brand the former governor as ‘out of touch’ with working-class people – and thus indirectly gave Obama some considerable political firepower.
Obama’s insistence on implementing the Buffett Rule fits neatly into his philosophy on redistributive justice. It comes across as good policy to Americans who are becoming painfully aware of the widening gap between rich and poor. In this regard, Obama is playing the populist.
It is, of course a strange notion to think that Obama’s attempt to actually increase taxation on a particular segment of the population can be considered populist. Countless presidential campaigns have been fought by promises to lower taxes, and one President in particular actually lost his campaign for re-election based on his reversal on promising ‘no new taxes’ (George H.W. Bush in 1992). Obama knows he’s running a risk in championing this proposal, but right now it looks like public sentiment will work in his favour.
But in looking to harness anti-elitist sentiment spurred on by such things as the ‘Occupy’ movement (and, ironically, the Republican nomination process itself), Obama’s policy does little to address some of the fundamental issues confronting the American economy.
For starters, the $48 billion in additional revenue generated by the policy over the next decade would do little in itself to reduce the government’s spiralling debt. There’s no question that the government needs to increase revenue as a step toward deficit reduction.
But to get a handle on an issue that’s as incredibly complex as this, much more is needed. Any kind of minimum tax is nothing more than a band-aid solution on a festering wound.
Secondly, the White House claims that the Buffett Rule is about closing tax loopholes. Limiting the opportunities for legal tax evasion is appropriate, but this policy would be ineffective in stopping it. The only people who could actually take advantage of these loopholes were the very wealthy anyway, and those who have the resources and the desire to continue exploiting the deficiencies in the American tax system will simply find other ways to do it.
Piecemeal tax incentives were part of the reason the government got into this mess, and piecemeal solutions will not get them out. Broad-based tax reform is the only solution here.
Democrats and Republicans have come to an impasse on the issue of tax reform many times during Obama’s administration. In this case, Republicans have unsurprisingly branded this policy as ‘class warfare’. But as deficient as the Buffett Rule may be, it is unquestionably better than what the Republicans are proposing.
Under the leadership of Paul Ryan, the GOP has made it very clear they are absolutely opposed to tax increases of any kind and would scuttle any budget involving anything other than spending cuts. Unfortunately, given the composition of Congress right now, this is probably what future budgets will look like.
This debate will highlight major ideological differences between the candidates, each of whom represent particular views on economic fairness, inpidual liberty, and the role of government in redistributing wealth.
Politics are all about perception, and Obama knows he is sending a very clear message with this rule. The President would like to see America return to a time of greater income redistribution and tighter financial regulation. The Buffett Rule certainly represents (at least the beginnings of) substantial change in policy direction, and for that reason, Obama should be recognized as having the right intentions.
But if he really truly wants to affect change in a broken system, he will have to move far beyond the Buffett Rule to do it.
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